What drives management consulting spending? The role of economic complexity, knowledge economy and transaction costs

Purpose When are organizations more or less likely to acquire external knowledge through purchasing management consulting services? The author argues that the difficulty of the decision problem and the complexity of the solution landscape increase the necessity and value of external management knowledge acquisition. The purpose of this study is to examine determinants of cross-country differences in management consulting spending. The author draws from the organizational search literature, the knowledge-based theory of the firm and transaction cost economics to develop the research hypotheses. Design/methodology/approach The author empirically investigates the effect of a country’s economic complexity, knowledge economy and transaction costs on management consulting using cross-country panel data of 24 European countries between 2004 and 2011 as well as hybrid random effects generalized least squares regressions. Findings The author documents that organizations are more likely to buy management consulting services when they navigate a complex economic landscape or compete in a knowledge-based economy. Furthermore, the author finds support for the negative effect of transaction costs in an economy on a country’s management consulting expenditures. Originality/value The results of this study provide contributions to the literature on business knowledge purchasing and management consulting research.